Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Economic Stimulus Alive and Kicking in EU

  by    0   0

Janet Yellen and company pretty much followed the script during last week’s Federal Open Market Committee meeting, raising interest rates another .25 percent and signaling three rate hikes in 2018.

We tend to focus primarily on Federal Reserve actions, but it’s important to remember the Fed isn’t the only central bank game in town. While it nudges interest rates slowly upward, the European Central Bank is standing pat on economic stimulus. And there’s no indication that is going to change in the near future.

With its latest rate hike, the Federal Reserve has pushed the Federal Fund Rate to 1.5%. That’s the highest we’ve seen since 2008. Even at that, we’re still well below the 5.25% peak hit during the last expansion.

Meanwhile, ECB chair Mario Draghi announced back in October that quantitative easing would live on in the EU.  The European Central Bank plans to extend its bond-buying program deep into 2018, continuing the flow of easy money into the European Union. Last week, Draghi stuck to that course, saying the inflation outlook remains “muted.” The ECB plans to hold interest rates down for “an extended period.”

The Bank of England raised its key interest rate last month, but officials say they have no plans to follow up in the near future.

So, why the reluctance to move away from stimulus if the economy has recovered? Ryan McMaken at the Mises Institute provides some analysis.

Draghi “repeatedly stressed that what the eurozone is experiencing is no longer a mere ‘recovery’ but instead an ‘expansion…'” One is left wondering, however, why the ECB refuses to let up on the stimulus if the economy is doing so well.

Over the past decade, central bankers have gotten into a fairly predictable habit of declaring the economy to be “strong” or “robust” while simultaneously refusing to scale back the central bank’s stimulus. As numerous commentators have pointed of, though, Europe’s monetary policy remains in the service of debt-laden governments which rely on rock-bottom rates to keep debt payments low. Moreover, the threat of a banking crisis in Italy isn’t exactly exactly motivating central bankers to raise rates.

From their perspective, it’s better to just keep rates low indefinitely, and hope for the best.

This makes one wonder how the Fed can continue to push rates higher. The US government continues to spend money like a drunken sailor and if the GOP manages to push its tax reform plan through, we can expect even more debt over the next decade. The government is going to need to keep interest rates low in order to manage its debt service.

It won’t take much to convince the Fed to reverse course. We’d expect normalizing to stall the minute there is the slightest economic wobble.

WhyBuyGoldNowBanner.070815.590

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Peter Schiff: Making the Dollar Weak Again

trump at cpacThrough the last several presidential administrations, the US has maintained a “strong dollar” policy. As Peter Schiff pointed out in his most recent podcast, it wasn’t so much that you could pinpoint the specific tenets of the policy. It was more about the rhetoric that came out of Washington D.C. Everybody talked about the strong dollar […]

READ MORE →

Is Gold the Victim of too Much Bad News?

There is plenty of bad news out there. We have a trade war. Geopolitical tensions between the US and Iran and the US and Russia are high. Turkey is in the midst of a currency crisis that some fear will spread beyond that country’s borders. So, why aren’t people seeking safe haven and buying gold […]

READ MORE →

Basic Economics: $5 Coke Cans and Minimum Wage Laws

One of the biggest enduring economic myths is the notion that the minimum wage laws only help workers and have no real negative effects. The fallacy inherent in this line of thinking becomes immediately clear if we simply propose a $1,000 per hour minimum wage. After all, if $15 is good, $1,000 would be fantastic, […]

READ MORE →

Beware of the Bear

The bulls are running down Wall Street, but are bears lurking just around the corner? The mainstream doesn’t think so, but Peter Schiff does. The Dow Jones climbed nearly 400 points Thursday after the Chinese announced a willingness to resume trade talks with the United States. No agenda was set, but the mere prospect of […]

READ MORE →

Peter Schiff: Out of the Frying Pan and into the Fire

Turkey has been in the headlines over the last few weeks as a currency crisis has rocked that country. But as Peter Schiff pointed out in his most recent podcast, all of the things commentators are frying Turkey over are happening in the US as well. All of the criticism that is being leveled against […]

READ MORE →

Comments are closed.

Call Now